سیاست های پولی و محدودیت های مالی بدون هیچ پیش فرضی

This paper discusses monetary and fiscal policy interactions that stabilize government debt. Two distortions prevail in the model economy: income taxes and liquidity constraints. Possible obstructions to fiscal policy include a ceiling on the equilibrium debt-to-GDP ratio, zero or negative elasticity of tax revenues, and a political intolerance of raising tax rates. At the fiscal limit two mechanisms restore solvency: fiscal inflation, which reduces the real value of nominal debt, and open market operations, which diminish the size of government debt held by the private sector. Three regimes achieve this goal. In all regimes monetary policy is passive. In all regimes a muted tax response to government debt is consistent with equilibrium. The propensity of a fiscal authority to smooth output is found to determine what is an acceptable response (in the form of tax rate changes) to the level of government debt, while monetary policy determines the timing and magnitude of fiscal inflation. Impulse responses show that the inflation and tax hikes needed to offset a permanent shock to transfers are lowest under nominal interest rate pegs. In this regime, most of the reduction in the real value of government debt comes from open market purchases.

This paper discusses stabilizing fiscal-monetary regimes at the ‘fiscal limit,’ where the government is able to increase tax revenues only by small amounts. Fiscal limits imply that current deficits are financed mainly by increasing government debt. Assuming no outright default, this regime is sustainable only if market equilibrium brings about fiscal solvency. In this situation, the real value of nominal government debt is determined according to the celebrated fiscal theory of the price level, whose canonical foundations are set in Leeper (1991), Sims (1994), Woodford (1995), and Bassetto (2002). The contribution of this paper is to extend the conventional treatment of monetary-fiscal policy interactions, in which there is lump-sum taxation only, to an economy with distortionary taxation, capital accumulation, and liquidity constraints. As a result, the issue of nominal and real determinacy implies a new role for monetary policy in a fiscal theoretic equilibrium that is not the classical passive stance. Specifically, this paper recognizes the crucial role of open market operations in the stabilization of government debt, and specifies policy prescriptions that restore fiscal solvency. Moreover, it demonstrates that some interactions can substantially moderate the extent of fiscal inflation and fiscal consolidation required to stabilize government debt.

We construct a fiscal theoretic framework, with tax distortions, capital accumulation, and liquidity constraints, to examine policy regimes that stabilize government debt on the impact of fiscal stress. In this model, the government has three degrees of freedom in choosing its long-run targets. Other aggregates must adjust so as to balance the consolidated budget in the steady state. As a result, limitations to fiscal policy – such as a ceiling on transfers, a minimum tax rate, or a ceiling on debt to output ratio – emerge endogenously. Any shock to long-run levels may render the existing debt unsustainable. Restoring fiscal solvency requires some degree of fiscal consolidation. However, an active fiscal stance that brings about fiscal inflation can devalue a substantial portion of government debt. Three monetary-fiscal regimes achieve this goal in a distorting tax scenario: (a) a regime where the fiscal authority targets only the primary deficit; (b) a regime where the fiscal authority targets both the primary and the secondary deficits and has the ability to increase its tax revenues; and (c) a regime where the fiscal authority targets both the primary and secondary deficits but is not able to increase its tax revenues. In all regimes monetary policy is passive and fiscal policy is active in the sense that it must allow government debt to grow at a rate greater than the growth rate of tax revenues.